Treasury's Third Report Under Section 4026(b)(1) of the CARES Act
Summary
A U.S. Department of the Treasury report under Section 4026(b)(1) of the CARES Act on loans to air carriers, eligible businesses and national security businesses; it is Treasury's third such report and reflects two transactions. Treasury entered into the two loan transactions for a total of $21.8 million, all of which has been disbursed. Legacy Airways, LLC, a cargo air carrier with approximately 19 U.S. employees, received an unsecured loan totaling $1.8 million at LIBOR plus 5.5%, maturing October 20, 2025. Ovation Travel Group, Inc., a ticket agent with approximately 250 U.S. employees, received an unsecured loan totaling $20 million on the same rate, maturing October 15, 2025. Each loan is senior indebtedness, and Treasury will also receive 3% payment-in-kind annual interest under section 4003(d).
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“Treasury's Third Report Under Section 4026(b)(1) of the CARES Act.”
Original at home.treasury.gov. Archived at Pandemic Darlings, https://pandemicdarlings.com/source-documents/u-s-department-of-the-treasury-4026-b-1-b-loan-report-10-23-2020-c2f99a3af8/
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Report Under Section 4026(b)(1) of the CARES Act on
Loans to Air Carriers, Eligible Businesses, and National Security Businesses
Program Description
Section 4003 of the Coronavirus Aid, Relief and Economic Security Act (CARES Act)
authorizes the Treasury Department to make loans, loan guarantees, and other
investments to provide liquidity to eligible businesses related to losses incurred as a result
of coronavirus.
The CARES Act provides:
(1) up to $25 billion for loans and loan guarantees for passenger air carriers; eligible
businesses that are certified under 14 CFR part 145 and approved to perform
inspection, repair, replace, or overhaul services; and ticket agents (as defined in
49 U.S.C. § 40102);
(2) up to $4 billion for loans and loan guarantees for cargo air carriers; and
(3) up to $17 billion for loans and loan guarantees for businesses critical to
maintaining national security.
A loan or loan guarantee under section 4003 may be made in such form and on such
terms and conditions and contain such covenants, representations, warranties, and
requirements as the Treasury Secretary determines appropriate. However, the CARES
Act specifies a number of requirements applicable to these loans. Among other
requirements under the statute, borrowers must agree to maintain employment levels as
of March 24, 2020 to the extent practicable, and in any case not reduce their employment
levels by more than 10 percent from the levels on such date, until September 30, 2020.
Borrowers must also agree to certain restrictions on employee compensation; agree not
to repurchase stock, except to the extent required under a contractual obligation in effect
as of March 27, 2020; and agree not to pay dividends or make other capital distributions
with respect to the borrower’s common stock until 12 months after the loan has been
repaid.
In addition, the CARES Act requires that Treasury receive a warrant or equity instrument
in the borrower if the borrower is a public company (unless Treasury determines that the
issuance of warrants or equity is infeasible, in which case the company must provide a
senior debt instrument), or a warrant, equity instrument, or senior debt instrument if the
borrower is a private company, to compensate taxpayers.
Reporting Requirements
The CARES Act requires Treasury to make a number of disclosures regarding its loans
and loan guarantees under section 4003 of the CARES Act:
(1) under section 4026(a) of the CARES Act, not later than 72 hours after any
transaction under section 4003(b)(1), (2), or (3) of the CARES Act, Treasury must
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publish on its website a description of the transaction, certain transaction terms,
and transaction documentation;
(2) under section 4026(b)(1)(A) of the CARES Act, not later than seven days after any
loan or loan guarantee under section 4003(b)(1), (2), or (3), Treasury must submit
to Congress a report summarizing the actions taken under those provisions and
certain related financial information;
(3) under section 4026(b)(1)(B) of the CARES Act, not later than seven days after
delivering the report to Congress described above, Treasury must publish the
report on its website; and
(4) under section 4026(b)(1)(C) of the CARES Act, every 30 days while a loan or loan
guarantee under section 4003(b)(1), (2), or (3) is outstanding, Treasury must
publish on its website a report summarizing its reports to Congress described
above.
Current Report
This is Treasury’s third report under section 4026(b)(1) of the CARES Act and reflects two
transactions: one transaction on October 16, 2020, and one transaction on October 20,
2020.
Treasury entered into these two loan transactions under section 4003(b)(1), (2), or (3) of
the CARES Act for a total of $21.8 million, all of which has been disbursed.
Legacy Airways, LLC
Treasury agreed to make a loan totaling $1.8 million to Legacy Airways, LLC (Legacy),
a cargo air carrier with approximately 19 U.S. employees in March 2020.
The loan is unsecured. It has an annual interest rate equal to LIBOR plus 5.5% and
matures on October 20, 2025. Treasury funded the full loan amount at close. The
loan proceeds will be used to provide liquidity to continue Legacy’s operations. The
transaction agreement includes covenants by Legacy to comply with certain
restrictions on employee compensation, stock repurchases, dividends, and reductions
in employment levels, as required by the CARES Act. The loan constitutes senior
indebtedness of Legacy, and Treasury will also receive 3% payment-in-kind annual
interest on the loan in accordance with section 4003(d) of the CARES Act.
Ovation Travel Group, Inc.
Treasury agreed to make a loan totaling $20 million to Ovation Travel Group, Inc.
(Ovation), a ticket agent with approximately 250 U.S. employees in March 2020.
The loan is unsecured. It has an annual interest rate equal to LIBOR plus 5.5% and
matures on October 15, 2025. Treasury funded the full loan amount at close. The
loan proceeds will be used to provide liquidity to continue Ovation’s operations. The
transaction agreement includes covenants by Ovation to comply with certain
restrictions on employee compensation, stock repurchases, dividends, and reductions
in employment levels, as required by the CARES Act. The loan constitutes senior
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indebtedness of Ovation, and Treasury will also receive 3% payment-in-kind annual
interest on the loan in accordance with section 4003(d) of the CARES Act.
The loan agreements are available on Treasury’s website at
https://home.treasury.gov/policy-issues/cares/preserving-jobs-for-american-
industry/loans-to-air-carriers-eligible-businesses-and-national-security-businesses.
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Detailed Financial Statement ($ Thousands)
Total
Anticipated
Borrower Date of Loan Maturity Loan
Borrower Type1 City2 State2 Agreement Date Amount Disbursements3
Legacy Cargo
Conroe TX 10/20/20 10/20/25 $1,817,306 $1,817,306
Airways, LLC Air Carrier
Ovation Travel Ticket
New York NY 10/15/20 10/15/25 $20,000,000 $20,000,000
Group, Inc. Agent
1. Only certain categories of entities are eligible to receive loans under sections 4003(b)(1), (2), and (3) of the CARES Act. Under those
provisions, a borrower must be a passenger air carrier; a business that is certified under 14 CFR part 145 and approved to perform
inspection, repair, replace, or overhaul services; a ticket agent (as defined in 49 U.S.C. 40102); a cargo air carrier; or a business
critical to maintaining national security.
2. The location provided is the address included by borrowers in their applications and may not include all locations in which a borrower
operates.
3. Includes disbursements between October 15, 2020, and October 20, 2020.
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